The Fed: Fed chief Powell says Congress and the central bank will have to spend more to ensure a robust recovery
Central bank chief says damage from COVID-19 is not short term
Federal Reserve Chairman Jerome Powell said the trillions of dollars spent to support the U.S. economy in the wake of the coronavirus pandemic will likely not be enough if there is to be a robust recovery.
“I would say that it may well be the case that the economy will need more support from all of us if the recovery is to be a robust one,” Powell told reporters gathered on a webcast Wednesday.
Powell cautioned about the length of time it would take the economy to recover and the risks the slow recovery could create, said Carl Tannenbaum, chief economist at Northern Trust.
“I think that is appropriate, but that might have come as a little bit of a surprise to markets,” Tannenbaum added.
Diane Swonk, chief economist at Grant Thornton, said the consensus among economists is that the U.S. will need another $2 trillion in aid and stimulus on top of the nearly $3 trillion Congress has already approved.
“It’s crystal clear [Congress and the White House] will need to do more,” Tannenbaum agreed. He said unemployment benefits will need to be extended and somehow Congress “will need to get more money out the door for small business.”
In its policy statement, the Fed committed itself to use its full range of tools to help the U.S. economy, which is facing considerable risks from the coronavirus pandemic.
“The ongoing public health crisis will weigh heavily on economic activity, employment and inflation in the near term, and poses considerable risks to the economic outlook over the medium term,” the Fed said, after a two-day meeting.
The Fed kept its benchmark interest rate in a range from 0 to 0.25% as expected and repeated it would hold monetary policy steady until the economy has weathered recent events and “is on track” to achieve full employment and price stability. That is unchanged from the March forward guidance.
Powell refused to be drawn into a discussion of Treasury and mortgage asset purchases, which are now “open-ended,” but have slowed in recent weeks.
He said the Fed has mulled changes to these purchases but wants to see which of the “potential paths the economy could be on” before deciding. Since first week of March, the Fed has purchased $1.4 trillion in U.S. Treasurys.
The economy is reeling as the stay-at-home orders designed to stop the spread of the COVID-19 pandemic have brought business and personal activity to a standstill.
The service economy typically can power through a recession but not a quarantine. There are now 26 million Americans who have been laid off over the past five weeks. Economic activity in the first quarter contracted at a 4.8% annual rate and economists expect an even larger drop in the April-June quarter.
Stocks finished higher Wednesday on the Fed’s pledge to use more tools. The Dow Jones Industrial Average
was up 532 points or 2.2% to 24,633.
Treasury yields came off session highs after the Fed statement was released. The yield on the 10-year Treasury note
rose slightly to 0.625%. Yields, which move inversely to price, are down from the 52-week high of 2.552% hit last May.